How to Choose a Life Insurance Policy

You need life insurance to secure financial protection for your family members, especially spouse and children after your exit. Insurance companies offer many plans such as Whole Life, Variable Life, Universal Life and Universal Variable Life. However, choosing the appropriate coverage for you and its benefits for your dependents or beneficiaries is of great importance. Here’s how you can buy the right life insurance plan.

Instructions

Difficulty: Moderately Easy

1. Analyze why you need a life insurance policy. If you have a spouse and other dependents—kids and other family members—life insurance coverage is necessary as it can minimize the financial losses after your death.
2. Assess your financial needs. Calculate the total financial value of your life and the loss that may accrue in case of an early demise. The key question is—how much financial compensation would be sufficient for the dependents in the event of your demise?
3. Go online and search for companies that offer life insurance plans. Shortlist the companies that can provide the coverage you are looking for. If you do not have access to the Internet, find phone numbers of insurance companies and agents from your telephone directory.
4. Contact insurance agents and collect information about different policies. One of the best plans is a Whole Life policy. It offers you wide coverage with a fixed premium and an option to get dividends. Remember, the names of such policies may differ from one company to another. These can be Whole Life, Custom Whole Life and Modified Premium Whole Life. However, the coverage and terms offered by different companies are similar.
5. Assess other policies. In a Variable Life plan, you can accumulate cash that is non-taxable. By taking a Universal Life policy, you can borrow money during lifetime and fine-tune your premiums. Through a Universal Variable plan, you can invest in mutual funds and stocks. In this, you have flexibility in paying premiums.
6. Calculate the face amount for which you want to buy life insurance. You can do this by an easier method. Make a total of your annual income. Multiply that amount by minimum six times. This can be a face amount of your policy. Alternately, estimate the total amount you will earn in the next five to six years, as everyone in the family would have more matured by that time. This can be the face amount. You may also evaluate your premium affordability and select the face amount of insurance policy.
7. Get multiple quotes. All companies have different coverage clauses and the premium depends on it. Talk to the agents about the kind of coverage you want and seek his advice. Consider the best option in terms of both premium and duration.
8. Ensure that you do not miss any important kind of coverage. Get all doubts clarified before finalizing the policy.
9. Compare ratings of the company. Insurance companies are rated by several agencies such as S&P and Moody’s. Choose a company with higher rating. Consider them for better services and fast claim processing.
10. Ask your agent to inform you promptly about any new coverage that the company offers in the future.
11. Consider insurance as an investment for your family. Choose the best option that can help your family to tide over the great loss in the event of your death at least financially.

Tips & Warnings

• Whole Life insurance proves to be cost-effective over the years.
• If your spouse earns more than you do, take the policy on your spouse’s name. Clearly distinguish between "emotional losses" and "financial losses." Insurance is one of the best a tools to ward off financial loss.
• If you buy a policy early on, then, as your children grow up and start earning, change the beneficiary name to your spouse.